Coalition for Icann v. Verisign, Inc. ( 2009 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
COALITION FOR ICANN 
TRANSPARENCY, INC., a Delaware
corporation, No. 07-16151
Plaintiff-Appellant,
v.  D.C. No.
CV-05-04826-RMW
VERISIGN, INC., a Delaware OPINION
corporation,
Defendant-Appellee.

Appeal from the United States District Court
for the Northern District of California
Ronald M. Whyte, District Judge, Presiding
Argued and Submitted
December 8, 2008—San Francisco, California
Filed June 5, 2009
Before: Mary M. Schroeder, A. Wallace Tashima and
William A. Fletcher, Circuit Judges.
Opinion by Judge Schroeder
6741
CFIT v. VERISIGN, INC. 6745
COUNSEL
Bret A. Fausett, Los Angeles, California, for the plaintiff-
appellant.
Ronald L. Johnston, Los Angeles, California, for defendant-
appellee.
Dennis M. Hart, Washington, DC, for amicus curiae Internet
Commerce Association.
OPINION
SCHROEDER, Circuit Judge:
This appeal is about whether the plaintiff, Coalition for
ICANN Transparency, Inc., using antitrust statutes drafted in
the late 19th century, has successfully stated claims in con-
nection with the administration of the Internet domain name
system, so essential to the operation of our sophisticated 21st
century communications network. The district court ruled that
the plaintiff failed. With the benefit of extensive briefing, col-
legial discussions and amicus participation on appeal from
other players in the domain name system, we hold that the
plaintiff has stated claims under both Sections 1 and 2 of the
Sherman Act, 15 U.S.C. §§ 1-2. We reverse and remand for
further proceedings.
I. Overview
Plaintiff Coalition for ICANN Transparency (“CFIT”) is an
organization composed of participants in the Internet domain
name system (“DNS”), including website owners. The heart
of the IT industry is located in the Silicon Valley, which lies
within the Northern District of California. CFIT filed its com-
plaint in 2005 in the Northern District against defendant Veri-
6746 CFIT v. VERISIGN, INC.
Sign, the corporation that acts as the sole operator of the
“.com” and “.net” domain name registries.
VeriSign operates each registry pursuant to a contract with
the Internet Corporation for Assigned Names and Numbers
(“ICANN”), a non-profit oversight body that coordinates the
DNS on behalf of the United States Department of Com-
merce. Pursuant to these contracts, VeriSign receives a certain
price for registering each domain name. It is not disputed that
there can only be one operator for each domain name registry
at any one time. Therefore, the only viable competition can
take place in connection with obtaining a new contract after
expiration of the old one. The .com agreement entered into by
ICANN and VeriSign in 2006, after no competitive bidding,
provides that the price of domain names can increase by seven
percent over four of the six succeeding years. The .net agree-
ment, which was entered into as a result of competitive bid-
ding, contained price caps that were set to expire on
December 31, 2006, leaving no limitation on the price that
could be charged for .net names. Each contract has a pre-
sumptive renewal provision.
CFIT’s complaint endeavored to state claims against Veri-
Sign under Section 1 of the Sherman Act and under Califor-
nia’s counterpart, the Cartwright Act, for conspiracy in
restraint of trade in connection with the terms of the .com and
.net contracts’ pricing and renewal provisions. In essence,
CFIT sought to show that the prices were artificially high and
that the renewal provisions wrongfully restrained competition
for successor contracts.
The complaint also endeavored to state claims under Sec-
tion 2 of the Sherman Act, alleging that VeriSign’s conduct
in obtaining the anti-competitive provisions constituted
monopolization or attempted monopolization of the .com and
.net registration markets. In addition, the complaint sought an
injunction against VeriSign’s proposed service for registration
CFIT v. VERISIGN, INC. 6747
of expiring domain names, on the ground it constituted an
attempted monopolization of that allegedly separate market.
The district court, after some discovery and several oppor-
tunities for CFIT to amend the complaint, dismissed the
action with prejudice for failure to state claims under state or
federal law in connection with either the .com or the .net con-
tract. It held that CFIT had not sufficiently alleged that either
the terms of the contracts or VeriSign’s conduct in obtaining
the contracts amounted to antitrust violations. The court also
held that CFIT failed sufficiently to allege that a market for
expiring domain names existed separate and apart from the
market for newly registered domain names.
In this appeal, CFIT contends that the district court failed
to appreciate the seriousness of the allegations of anti-
competitive conduct and that, in rejecting the existence of a
separate market for expiring domain names, the district court
improperly relied on already outdated authority from earlier
in this young century. We now agree with CFIT, at least with
respect to the claims challenging the terms and award of the
.com contract and asserting the existence of a separate market
for expiring domain names. We therefore reverse.
II. The Players
Plaintiff CFIT is a non-profit corporation composed of
DNS stakeholders, including domain name registrars and
owners of domain names (registrants). CFIT alleges that its
members, including both registrars and registrants, have an
interest in ensuring that conditions in the domain name regis-
tration market remain fair and competitive.
ICANN is a nonprofit corporation that was created in 1998,
in response to a policy directive of the Department of Com-
merce, to administer the domain name system on the Depart-
ment’s behalf. ICANN is charged by the Department of
Commerce with selecting and entering into agreements with
6748 CFIT v. VERISIGN, INC.
registry operators such as VeriSign. ICANN was named as a
defendant in CFIT’s original complaint and in its First
Amended Complaint, but CFIT dropped ICANN as a defen-
dant in the Second Amended Complaint, from which this
appeal arises. It seeks to maintain claims only against Veri-
Sign.
Defendant VeriSign is a corporation that, through its con-
tractual relationship with ICANN, acts as the sole operator of
the .com and .net domain name registries. This means that
VeriSign manages the definitive databases of registered .com
and .net domain names. VeriSign has held this position since
2001, prior to which its predecessor-in-interest, Network
Solutions, Inc. (“NSI”), managed the databases.
III. Nature and Terms of the Agreements
VeriSign has been the sole operator of the .com and .net
registries since 2001, when it entered into two separate agree-
ments with ICANN (the “2001 .com Agreement” and the
“2001 .net Agreement,” respectively). Those agreements
supercede ICANN’s previous agreements with NSI. The 2001
Agreements imposed on VeriSign a price cap of $6 per year
for registration, renewal, or extension of any domain name.
Each of the 2001 Agreements contained a renewal provision
that allowed ICANN to place the contract up for competitive
bidding upon its expiration.
When the 2001 .net Agreement expired in 2005, there was
a competitive bidding process that resulted in the selection of
VeriSign’s bid. VeriSign entered into a new agreement with
ICANN (the “2005 .net Agreement”). Before the 2001 .com
Agreement was due to expire in 2007, however, VeriSign and
ICANN agreed to extend it with a new contract (the “2006
.com Agreement”). Both the 2006 .com Agreement and the
2005 .net Agreement provide for automatic renewal upon
expiration unless a court or arbitrator issues a final order find-
ing VeriSign to be in breach of the Agreement, and VeriSign
CFIT v. VERISIGN, INC. 6749
fails to cure the breach. The 2006 .com Agreement also
increases the maximum price VeriSign can charge for domain
name registrations. The previous contract’s $6 cap was main-
tained until December 31, 2006, but the new contract provides
that cap may be increased seven percent per year in four of
the following six years. The 2005 .net Agreement does not
contain an express price increase provision. Its price cap of
$4.25 per domain name expired on December 31, 2006, leav-
ing no cap in its place.
IV. CFIT’s Claims
CFIT’s complaint included claims under Sections 1 and 2
of the Sherman Act, 15 U.S.C. §§ 1 & 2. CFIT sought to state
a Section 1 claim, for conspiracy in restraint of trade, in con-
nection with the pricing and renewal provisions of both the
2005 .net Agreement and the 2006 .com Agreement. CFIT
claimed that VeriSign and ICANN conspired to restrain trade
by setting prices for VeriSign’s registry services that were
substantially above the prices that would result from a com-
petitive market. Moreover, CFIT alleged that VeriSign and
ICANN violated Section 1 by imposing a presumptive
renewal provision in both the 2006 .com and 2005 .net Agree-
ments, all but ensuring VeriSign’s continued market domi-
nance by reducing or eliminating competition for successor
contracts.
CFIT’s first claim under Section 2 was for monopolization
and attempted monopolization of the .com and .net markets.
CFIT alleged that VeriSign engaged in improper and preda-
tory conduct, including financial pressure, vexatious litiga-
tion, and negative press coverage, in order to induce ICANN
to enter into agreements with terms that unlawfully favored
VeriSign. CFIT claimed that VeriSign eventually settled its
allegedly vexatious suit against ICANN by offering to pay
ICANN a multi-million dollar fee in exchange for favorable
terms in the 2006 .com and 2005 .net Agreements, thus doing
away with any competition for the next contract.
6750 CFIT v. VERISIGN, INC.
CFIT’s second claim under Section 2 concerned the exis-
tence of a separate market for expiring domain names. Expir-
ing domain names are names that have fallen back, or are
about to fall back into the registry database as a result of non-
renewal by their current owners. CFIT alleged that expiring
domain names are sufficiently distinct from other types of
domain names as to constitute a separate market for antitrust
purposes.
CFIT further alleged that VeriSign planned to “leverage”
its monopoly in the .com and .net markets into the market for
expiring names. According to CFIT’s complaint, pursuant to
a term in the 2006 .com Agreement permitting VeriSign to
launch new registry-related services, VeriSign planned to
launch a Central Listing Service (“CLS”) to replace the cur-
rent system for registration of expiring domain names. CFIT
alleged that VeriSign’s proposed CLS system will allow it to
leverage its existing monopoly in the .com and .net registra-
tion markets to achieve a monopoly of the market for expiring
domain names.
V. Legal Analysis
A. CFIT’s Claims Under Section 1 of the Sherman Act
[1] Section 1 of the Sherman Act prohibits “contract[s],
combination[s] in the form of trust or otherwise, or conspirac-
[ies], in restraint of trade or commerce.” 15 U.S.C. § 1. To
state a claim under Section 1, a plaintiff must allege facts that,
if true, will prove: (1) the existence of a conspiracy, (2) inten-
tion on the part of the co-conspirators to restrain trade, and (3)
actual injury to competition. Kendall v. Visa U.S.A., Inc., 518
F.3d 1042, 1047 (9th Cir. 2008) (citing Les Shockley Racing
Inc. v. Nat’l Hot Rod Ass’n, 884 F.2d 504, 507 (9th Cir.
1989)).
CFIT sought to state a Section 1 claim in connection with
the pricing and renewal provisions of the 2006 .com Agree-
CFIT v. VERISIGN, INC. 6751
ment and the 2005 .net Agreement. CFIT alleged that ICANN
and VeriSign conspired to set artificially high prices for Veri-
Sign’s services and to ensure that VeriSign would receive
successor contracts with ICANN without having to go
through a competitive bidding process. We conclude that
CFIT adequately alleged a Section 1 violation with respect to
the 2006 .com Agreement.
1. Renewal
CFIT challenged the renewal term in both the .com and .net
contracts providing that VeriSign will receive automatic
renewal upon expiration of each contract unless a court or
arbitrator issues a final order finding VeriSign to be in breach
of the Agreement, and VeriSign fails to cure the breach. CFIT
alleged the renewal term unlawfully restrains competition
because the provision that would trigger a competitive re-bid
for the contract is “illusory,” and that “at the time they exe-
cuted the Agreement[s], both ICANN and VeriSign under-
stood that [the provision] never would be triggered.” CFIT
alleged that the threat of losing each contract in a competitive
re-bid is essential to protect competition in that it “benefits
consumers by keeping prices in check, . . . by maintaining
solid and reliable performance of the registry, and by prevent-
ing the registry from undertaking abusive practices that would
financially benefit the registry at the expense of the end-user’s
experience.” The district court found that CFIT’s complaint
was insufficient to state a challenge to the renewal provision,
concluding that CFIT’s allegation regarding the illusory
nature of the re-bid provision was “conclusory and specula-
tive,” and insufficient to allege a violation of antitrust law.
[2] We have expressly held, however, that concerted action
between co-conspirators to eliminate competitive bidding for
a contract is an actionable harm to competition. Harkins
Amusement Enters., Inc. v. Gen. Cinema Corp., 850 F.2d 477,
487 (9th Cir. 1988). In Harkins, the defendants were distribu-
tors and exhibitors of films who “rigged” a bidding process in
6752 CFIT v. VERISIGN, INC.
order to ensure that the exhibitors would obtain licenses to
display films released by the distributors, thus excluding from
competition the plaintiff, a rival film exhibitor. Id. at 487-88.
We found a Section 1 violation for injury to competition even
though the only entity harmed, in the particular circumstances
of that case, was the plaintiff. Id. at 488. The allegation in this
case regarding the elimination of competitive bidding at the
expiration of each successive registry agreement means that
any other potential registry operator is excluded from compe-
tition, making the alleged harm to competition in this case
even more severe than that at issue in Harkins.
[3] CFIT’s complaint is not limited to alleging that the
renewal provision harms individual competitors in the DNS.
Rather, CFIT alleged that competition itself has been elimi-
nated as a result of VeriSign and ICANN’s conspiratorial con-
duct. This is precisely the type of allegation required to state
an injury to competition. Austin v. McNamara, 979 F.2d 728,
738 (9th Cir. 1992) (to state injury to competition, plaintiff
must allege conduct that “actually causes injury to competi-
tion, beyond the impact on the claimant”). CFIT has also
alleged that consumers are harmed by this anti-competitive
restraint, in the form of higher prices for registration of
domain names, and potentially lower-quality services. In
combination with the allegations regarding the existence of
the conspiracy between VeriSign and ICANN as well as the
intent to restrain competition, these allegations of harm to
competition are sufficient to state a claim under Section 1.
Kendall, 518 F.3d at 1047.
[4] Because restraint of trade claims under Section 1 do
require the showing of a conspiracy whose members intended
to restrain trade, see id., we conclude that CFIT’s allegations
regarding the renewal provision in the contracts is made out
only with respect to the .com contract. CFIT has adequately
pled the existence of a conspiracy between VeriSign and
ICANN, and that VeriSign had the intent to restrain trade
when it entered into the .com contract. However, the .net con-
CFIT v. VERISIGN, INC. 6753
tract was reached after a competitive bidding process. CFIT
has not adequately alleged that conspiratorial conduct to
restrain trade was involved in the making of the .net agree-
ment. CFIT’s allegations concerning ICANN and VeriSign’s
adoption of the presumptive renewal provision are therefore
sufficient to make out a Section 1 claim for restraint of trade
with respect to the 2006 .com Agreement alone.
2. Pricing
CFIT further alleged in its complaint that the seven-
percent-per-year increase in the allowable fee under the 2006
.com Agreement exceeds the rate competitive market condi-
tions would produce. CFIT’s complaint stated that if the .com
Agreement had been put out for competitive bidding, “the
costs of domain name registrations would have fallen to at
least as low as $3.00 per domain name, with at least the same
level and quality of services provided by VeriSign.” Counsel
for CFIT stated at oral argument before the district court that
potential competitors of VeriSign had stated publicly that, if
awarded the .com contract, they could and would offer regis-
try services at or below $3 per domain name.
The district court held that CFIT had not stated a cogniza-
ble claim regarding the pricing provisions in the 2006 .com
Agreement, finding that an increase in the price of services,
standing alone, did not give rise to antitrust liability. The dis-
trict court relied primarily on Alaska Airlines, Inc. v. United
Airlines, Inc., 948 F.2d 536 (9th Cir. 1991), in which this
court held that a high price alone is not an antitrust violation.
We stated in Alaska Airlines that while “setting a high price
may be a use of monopoly power, . . . it is not in itself anti-
competitive.” Id. at 549 (quoting Berkey Photo, Inc. v. East-
man Kodak Co., 603 F.2d 263, 294 (2d Cir. 1979)).
[5] The district court’s reliance on Alaska Airlines was mis-
placed, however, because the pricing claims at issue in that
case were monopolization claims arising solely under Section
6754 CFIT v. VERISIGN, INC.
2 of the Sherman Act. See id. at 541 n.8. In this case, by con-
trast, CFIT’s allegation is that the pricing provision in Veri-
Sign and ICANN’s 2006 .com Agreement unlawfully
restrains trade, in violation of Section 1. Alaska Airlines itself
distinguishes between the proper inquiries the court should
undertake in the Section 1 and Section 2 contexts: “While
concerted conduct is subject to sanction [under Section 1] if
it merely restrains trade, unilateral conduct is subject to sanc-
tion [under Section 2] only if it either actually monopolizes or
threatens monopolization.” Id. at 541 (citing Copperweld
Corp. v. Indep. Tube Corp., 467 U.S. 752, 767-69 (1984)). In
other words, an entity cannot be held liable for antitrust viola-
tions if it simply unilaterally increases its prices, absent a
showing that it either conspired with another entity in order
to restrain trade, or acted in a market in which it holds or is
attempting to hold a monopoly. See Copperweld, 467 U.S. at
768-69 (“Congress treated concerted behavior more strictly
than unilateral behavior . . . . [because] [c]oncerted activity
inherently is fraught with anticompetitive risk.”).
[6] In this case, CFIT’s allegation is not that VeriSign took
unilateral action to increase the price of its services, but that
VeriSign and ICANN undertook concerted action to restrain
trade by imposing prices higher than market rate and under
conditions hostile to competition. Applying the correct
inquiry for Section 1 violations, we conclude that CFIT has
adequately alleged that the pricing provision in VeriSign and
ICANN’s 2006 .com Agreement unlawfully restrains trade.
CFIT has alleged the existence of a conspiracy, and that Veri-
Sign and ICANN had the intent to impose terms for pricing
and price increases that restrained trade. CFIT’s allegations
concerning the prices alternative registry operators would
offer, were they able to compete with VeriSign for successor
contracts, are adequate to state a claim of actual injury to
competition, in that potential competitors are allegedly unable
to bid for operation of the .com registry, and that consumers
are allegedly unable to benefit from the positive effects of that
competition. Harm to consumers in the form of higher prices
CFIT v. VERISIGN, INC. 6755
resulting from competitive restraints has long been held to
constitute an actual injury to competition in the Section 1 con-
text, see Am. Ad Mgmt., Inc. v. GTE Corp., 92 F.3d 781, 791
(9th Cir. 1996) (“[I]t is difficult to image a more typical
example of anti-competitive effect than higher prices . . . .”),
and CFIT’s complaint adequately alleges that such injury has
occurred and is still occurring. CFIT’s complaint is therefore
sufficient to state a claim under Section 1 in connection with
the pricing provisions of the 2006 .com Agreement.
[7] CFIT also attempted to allege a Section 1 violation in
connection with the pricing terms in the 2005 .net Agreement.
The .net contract imposed an initial price cap of $4.25 per
domain name registration, but provided that this cap would
expire on December 31, 2006, leaving no price limitation in
place. Although this claim involved terms comparable to
those in the .com contract, CFIT has not made out a Section
1 violation for the .net pricing agreement. The .net contract
was reached as a result of competitive bidding, not conspira-
torial action. CFIT’s assertion that some terms of the agree-
ment changed after VeriSign’s bid was accepted, without
allegations of materiality, does not suffice to state a claim for
existence of a conspiracy and the intent to restrain trade. See
id.B. CFIT’s Claims Under Section 2 of the Sherman Act
CFIT also asserted claims under Section 2 of the Sherman
Act, alleging first that VeriSign’s predatory conduct in obtain-
ing the anti-competitive provisions described above consti-
tuted monopolization or attempted monopolization of the
.com and .net registration markets. CFIT’s second Section 2
claim alleged the existence of a separate market for expiring
domain names, and attempted monopolization of that market.
With respect to the latter claim, the district court held that
CFIT failed to state a claim because it failed to allege that
expiring names are sufficiently distinct from other types of
names. With respect to the former, the district court held that
6756 CFIT v. VERISIGN, INC.
CFIT also failed to state a claim for predatory conduct. The
district court, apparently construing CFIT’s claim as pertain-
ing solely to VeriSign’s initiation of litigation against
ICANN, held that CFIT failed to state a claim because it
alleged only that VeriSign’s allegedly vexatious litigation
against ICANN was “oppressive and costly,” not that it was
“baseless.” In making this determination, the court relied on
the doctrine that litigation activity is immune from antitrust
liability unless it is “a mere sham.” See Prof’l Real Estate
Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49,
56 (1993) (quoting E.R.R. Presidents Conf. v. Noerr Motor
Freight, Inc., 365 U.S. 127, 144 (1961)); see also United
Mine Workers v. Pennington, 381 U.S. 657, 670 (1965).
1. Predatory Conduct
CFIT alleged that the 2006 .com Agreement and the 2005
.net Agreement were reached through improper conduct by
VeriSign, including financial pressure and vexatious litigation
against ICANN. CFIT alleged that in order to get ICANN to
agree to the terms VeriSign desired, VeriSign paid lobbyists
to support its position, “stacked” ICANN’s public meetings
with VeriSign supporters, hired purportedly independent
organizations and individuals to advocate VeriSign’s position,
paid bloggers to attack ICANN’s reputation, planted news
stories critical of ICANN in mainstream media, threatened
ICANN with litigation, arbitration, and government investiga-
tion, and indeed eventually brought suit against ICANN in
federal and state court. VeriSign’s suit against ICANN was
settled, allegedly as a result of VeriSign’s offer to pay
ICANN a fee of between $6 and $12 million in exchange for
the favorable terms in the agreements. VeriSign and ICANN’s
Settlement Agreement expressly provided that VeriSign “will
not participate in, contribute monies for, encourage or provide
other support for any activities by or for third parties that seek
to undermine ICANN’s role [as ‘the appropriate technical
coordination body for the DNS’], and it will immediately
cease any such ongoing activities.” Settlement Agreement
CFIT v. VERISIGN, INC. 6757
between ICANN and VeriSign, http://www.icann.org/en/tlds/
agreements/verisign/ICANN-VRSN-settlement-agreement-
2005.pdf, at 1.
In concluding that CFIT failed to state a claim for predatory
conduct, the district court erroneously construed the allegation
in the complaint as pertaining solely to VeriSign’s litigation
against ICANN, rather than to the predatory and harassing
activities that accompanied that litigation. The district court’s
reliance on the Noerr-Pennington immunity doctrine therefore
was misplaced, because Noerr-Pennington immunizes only
litigation activity, not other forms of threats or harassment.
[8] We have long held that Section 2 claims may be prem-
ised upon predatory conduct that is aimed at achieving or
maintaining a monopoly in a given market. We have
explained that a claim for monopolization of trade has two
elements: “the possession of monopoly power in the relevant
market and . . . . the acquisition or perpetuation of this power
by illegitimate ‘predatory’ practices.” Alaska Airlines, 948
F.3d at 541-42 (citing Aspen Skiing Co. v. Aspen Highlands
Skiing Co., 472 U.S. 585, 596 n.19 (1985); Catlin v. Wash.
Energy Co., 791 F.2d 1343, 1348 (9th Cir. 1986)). Similarly,
to state a claim for attempted monopolization, the plaintiff
must allege facts that, if true, will prove: “(1) that the defen-
dant has engaged in predatory or anticompetitive conduct with
(2) a specific intent to monopolize and (3) a dangerous proba-
bility of achieving monopoly power.” Cascade Health Solu-
tions v. PeaceHealth, 515 F.3d 883, 893 (9th Cir. 2008)
(quoting Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447,
456 (1993)).
[9] CFIT has alleged that VeriSign’s predatory litigation
activity was aimed at coercing ICANN to perpetuate Veri-
Sign’s role as exclusive regulator of the .com domain name
market by awarding VeriSign the 2006 .com Agreement with-
out any competitive bidding, and by agreeing to the terms that
favored VeriSign. These allegations meet the requirements
6758 CFIT v. VERISIGN, INC.
articulated in Cascade Health Solutions for stating an
attempted monopolization claim. 515 F.3d at 893.
[10] Moreover, the Supreme Court has held that an entity
may be prosecuted for a Section 2 violation on the basis of
improper coercion of a standards-setting body. In Allied Tube
& Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 495-97
(1988), the Court imposed Section 2 liability on the defen-
dant, a manufacturer of steel electrical conduits. This liability
was for predatory actions undertaken to coerce the National
Fire Protection Association (“NFPA”), a body that published
product standards and building codes, to publish standards
barring the use of plastic conduits, a rival product which the
plaintiff manufactured. The activities undertaken by the
defendant in Allied Tube included such conduct as packing
NFPA meetings with paid supporters of the defendant who
would advocate for the banning of plastic pipes. Id. at 496.
The Court noted that even such “unethical and deceptive prac-
tices” are protected from antitrust liability where they are
either directly aimed at or “ ‘incidental’ to a valid effort to
influence government action.” Id. at 499 (citing Noerr, 365
U.S. at 140-41). However, the Court explained that predatory
activities aimed at private standards-setting bodies, like
NFPA, do not enjoy such categorical protection from liability.
The Court pointed to the “procompetitive advantages” of pri-
vate standards-setting organizations whose decisions are insu-
lated from “being biased by members with interests in stifling
product competition.” Id. at 501. In concluding that the defen-
dant’s predatory activities subjected it to liability, the Court
emphasized the fact that the NFPA, the body the defendant
sought to coerce, was a private organization without any
accountability to the public. Id. at 502.
[11] CFIT has essentially alleged that ICANN is a private
standards-setting body akin to the NFPA. ICANN administers
the DNS and is responsible for entering into agreements with
registry operators like VeriSign. According to the complaint,
ICANN’s mission includes a commitment to promoting com-
CFIT v. VERISIGN, INC. 6759
petition for the contracts. CFIT’s allegations further state that
ICANN, like the NFPA, is a private body with no public
accountability. These allegations are consistent with the view
held by commentators on the subject, who have, indeed, iden-
tified Allied Tube as providing the strongest argument in favor
of imposing antitrust liability on those who seek to coerce
ICANN. See Michael Froomkin & Mark A. Lemley, ICANN
and Antitrust, 1 U. Ill. L. Rev. 1, 72-73 (2003) (noting that
“given ICANN’s private status, VeriSign will face antitrust
liability for persuading a private company in a position of
power to grant it control over a market,” and naming Allied
Tube as the “closest analogue”). We hold, therefore, that pur-
suant to The Supreme Court’s holding in Allied Tube, CFIT
has adequately alleged that VeriSign’s improper coercion of
ICANN and attempts to control ICANN’s operations in its
own favor violated Section 2.
[12] CFIT also attempted to state a claim of predatory con-
duct in the .net registration market. The complaint’s allega-
tions did not reflect any assertion that VeriSign’s predatory
activities had any bearing on the competitive bidding process
that resulted in the 2005 .net Agreement. Accordingly, we
hold that CFIT’s claim of predatory conduct is made out with
respect to the 2006 .com Agreement only.
2. Expiring Domain Names Market
The issue presented with respect to the claim of attempted
monopolization of expiring domain names is whether the
existence of a separate market was adequately pled. CFIT
alleged that expiring domain names are more valuable than
other names because, in all likelihood, they have already been
advertised by the previous owner and already have web traf-
fic. CFIT alleged that expiring domain names are in higher
demand and command higher prices due to their unique fea-
tures. In other words, expiring names differ from, and are
more valuable than, names not previously used.
6760 CFIT v. VERISIGN, INC.
[13] A relevant market, for antitrust purposes, “can be
broadly characterized in terms of the ‘cross-elasticity of
demand’ for or ‘reasonable interchangeability’ of a given set
of products or services.” M.A.P. Oil Co., Inc. v. Texaco Inc.,
691 F.2d 1303, 1306 (9th Cir. 1982) (quoting United States
v. E.I. duPont de Nemours & Co., 351 U.S. 377, 395 (1956)).
We consider whether “the product and its substitutes are rea-
sonably interchangeable by consumers for the same purpose,”
as well as “industry or public recognition of the submarket as
a separate economic entity, the product’s peculiar characteris-
tics and uses, unique production facilities, distinct customers,
distinct prices, sensitivity to price changes, and specialized
vendors.” Id. (citations omitted).
The district court relied on two out-of-circuit, district court
cases to conclude that the complaint failed adequately to
allege that the market for expiring domain names is separate
from the market for other types of domain names. See Weber
v. Nat’l Football League, 112 F. Supp. 2d 667 (N.D. Ohio
2000); Smith v. Network Solutions, Inc., 135 F. Supp. 2d 1159(N.D. Ala. 2001). In Weber, the plaintiff brought a Section 2
claim against two professional football teams, the New York
Jets and the Miami Dolphins, who sought to prevent the plain-
tiff from registering the domain names “jets.com” and “dol-
phins.com.” 112 F. Supp. 2d at 673. The plaintiff alleged that
the market “should be defined by the demand for the domain
names ‘jets.com’ and ‘dolphins.com.’ ” Id. The court rejected
the plaintiff’s claim that the relevant market for antitrust pur-
poses should be circumscribed to the market for a particular
name, holding instead that the market should be “defined very
broadly, in terms of domain names in general.” Id. at 673-74.
[14] Weber is similar to this case only insofar as it also
involved antitrust claims defining a market for domain names.
We agree with that court that a market should not be defined
in terms of a single domain name. CFIT’s complaint, how-
ever, does not define the relevant market so narrowly. Rather,
it alleges that expiring domain names, as a group, are suffi-
CFIT v. VERISIGN, INC. 6761
ciently distinguishable from other domain names so as to con-
stitute a separate market. Weber did not deal with an alleged
market for expiring domain names.
The second case, Smith v. Network Solutions, did address
the question of whether a separate market for expiring domain
names was adequately alleged. In Smith, the court considered
a claim that the defendant, VeriSign’s predecessor-in-interest,
maintained an unlawful monopoly by failing expeditiously to
release newly expired domain names for re-registration. 135
F. Supp. 2d at 1166-67. The plaintiff alleged that the particu-
lar expiring domain names it wished to acquire constituted a
separate market for antitrust purposes. Id. at 1168. The court
rejected this proposed market definition, finding no apprecia-
ble difference between those particular expiring names and
other types of names.
The court broadly observed that “there is no inherent differ-
ence in character, for purposes of interchangeability and
cross-elasticity of demand, between domain names that are
‘expired’ . . . and those that are not.” Id. at 1169. It did so,
however, because it viewed the proposed market of some par-
ticular expiring domain names as too small. Thus, the deci-
sion in Smith, like Weber, was premised upon the court’s
reluctance to approve an overly narrow market definition con-
sisting of one or a few domain names. See Smith, 135 F. Supp.
2d at 1169 (“Taken to its logical conclusion, Plaintiff’s argu-
ment implies that each individual domain name is a relevant
market unto itself for antitrust purposes, subject the entity
‘controlling’ the name at a particular time . . . to a charge of
monopolization.”).
CFIT’s claims are not so narrowly drawn. Its complaint
relates to all expiring domain names, not just those a particu-
lar plaintiff wishes to acquire. Moreover, to the extent that the
Smith court may have viewed expiring domain names as inter-
changeable with other names, it may well be that expiring
domain names did not have a significant enough presence in
6762 CFIT v. VERISIGN, INC.
2001 for the court to consider a possible claim that, in the
aggregate, they amounted to a separate market. According to
the complaint, that is no longer the case. Moreover, amicus in
this case, the Internet Commerce Association (“ICA”), points
out that when Smith and Weber were decided, “the present
expired domain name market barely existed,” and that today’s
conditions were “unanticipated only a few years ago.”
[15] Here CFIT’s complaint alleges that every word in the
English language is already registered as a domain name, and
that desirable domain names can be difficult to come by. On
appeal, our understanding of the distinct role and value of
expiring domain names has also been significantly aided by
the explanation provided by the ICA. As cogently explained
by ICA, expiring domain names often carry with them a his-
tory of established web traffic and advertising support; when
such names do expire, they “still maintain much of [their]
prior inbound traffic,” making them more valuable than
domain names that have never before been registered. The
district court, of course, did not have the benefit of briefing
by amicus. With the benefit of this aid to our understanding,
we are not prepared to affirm the district court’s ruling that no
separate market exists. We therefore reverse and remand for
further proceedings.
C. Claims Concerning the .Net Market
[16] Although we conclude that CFIT has adequately stated
claims under Sections 1 and 2 with regard to VeriSign’s activ-
ities in the .com registration market, we cannot reach the same
conclusion for the allegations about the .net market. All of the
specific allegations of the complaint concerning predatory
conduct leading to the pricing and renewal provisions of a
contract relate to the 2006 .com Agreement. The complaint,
in its present form, contains no allegation that predatory or
conspiratorial conduct was involved in the process of reaching
the 2005 .net Agreement. CFIT may have viable claims with
respect to the .net market, but the district court will be in a
CFIT v. VERISIGN, INC. 6763
better position to determine whether it does if CFIT is given
an opportunity to amend its conclusory allegations to allege
more specific conduct or anti-competitive effect. We therefore
remand the .net claims so that CFIT may be afforded that
opportunity.
VI. Conclusion
We REVERSE the district court’s grant of VeriSign’s
motion to dismiss CFIT’s complaint for failure to state a
claim, and REMAND to the district court for further proceed-
ings consistent with this opinion.